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95. Smart Money Moves For Solopreneurs - Not As Obvious As You May Think with Gabe Nelson · The Life-First Solopreneur

• 0:00
  Gabe Nelson: As a solopreneur, it's a lonely game, and it's a lonely time. And if you just keep swimming, and you just keep moving forward, and you just keep doing the work, and helping the people, and making the calls, or doing the the things that you need to do, the success continues to build, and it builds upon itself.
• 0:20
  Intro: Bigger doesn't always mean better. Welcome to the 1 person business podcast where people who are flying solo in business come for specific tips and advice to find success as a company of 1. Here are your hosts, Joe Rando and Carly Ries.
• 0:39
  Carly Ries: Welcome to the 1 Person Business podcast. I'm one of your hosts, Carly Ries.
• 0:43
  Joe Rando: And I'm Joe Rando.
• 0:45
  Carly Ries: And I'm just gonna kick off this podcast with a prediction. This will be a must listen episode as today we are interviewing the host of solopreneur money podcast and author of the Solopreneur's Money Manifesto, Gabe Nelson. So no pressure, Gabe, but, just making that prediction that'll be one of my favorites. With 25 years in the financial services industry and more than a decade as a business owner, Gabe understands the importance of independent, objective, trusted advice, especially when it comes to running a company of 1.
• 1:13
  So, Gabe, we are so excited to have you and welcome to the show.
• 1:16
  Gabe Nelson: Oh, Carly and Joe, I am excited to be here. This is gonna be fun.
• 1:20
  Carly Ries: Awesome. Well, let's dive right into it because I have questions, just being a having been a solopreneur myself in the past, I'm I'm so interested in some of these answers. So taking a leap from employee to solopreneur can be terrifying. Do you have any tips on how to transition with confidence?
• 1:36
  Gabe Nelson: First one, don't do it. No. I'm joking. I'm sorry.
• 1:40
  Carly Ries: I just said it'll be one of the better podcasts.
• 1:50
  Gabe Nelson: Short, sweet and simple. The best way to make that transition is to build up some cash reserves so that you have the the replacement of your income, whether it's 3 months, whether it's 6 months, whether it's 12 months. I mean, whatever your comfort level is, you gotta build up some cash reserves so that when you go make that change over, you aren't looking at every single client like they are your ticket to groceries. You don't wanna be desperate. So if you have some cash reserves, you're ready. And then the second thing is that I always tell people is is make sure you have clients.
• 2:20
  Do you have somebody who's already willing to pay you for what you want to go do because you've done it as a side hustle, or you've done it in some other way or form, usually as a side hustle before we go on our own? And do you have a repeatable client gathering process? Like a sales process that says, if I keep doing this, I'm gonna keep getting clients. Because as a solopreneur, if you don't have revenues, you don't have a business. You don't have anything.
• 2:45
  Joe Rando: Expensive hobby.
• 2:46
  Gabe Nelson: Yeah. A very expensive hobby that is stressful and can cause major problems at home if you don't have your stuff together.
• 2:53
  Joe Rando: Quick question, Gabe. What about the idea of starting with a side hustle? And so you keep your job, but you do this in your in your spare time to kind of establish that you have a business. Is that something you recommend, or is it better to just kind of, you know, burn the bridges, burn the boats?
• 3:09
  Gabe Nelson: It depends. I was a burn the bridges type of person, but then again, I started in this industry right out of college, so I didn't have any bridges or boats to burn. I basically had nothing and started and built up. But when you've got, you know, kids and college and, you know, a family to support, usually that side hustle is a really good way to start because you can start to get your proof of concept and understand really what you're doing so so that when you go out on your own, you've got the confidence to go build that business quickly and replace your income even faster.
• 3:43
  Joe Rando: That makes sense.
• 3:45
  Carly Ries: That's a great point. And Gabe, that actually, I had another question that ties into the first one, but fear of the unknown is very real for solopreneurs. And that's why some people might do a side hustle. But this happens especially with money. How can people best prepare for the unexpected?
• 4:00
  Gabe Nelson: The simple is kinda to go back to that. The answer that I already gave is set aside 6 months of your revenues, or your income that you had before so that you have got the runway of your income to to use to support yourself. If you are doing proper financial planning, which most people don't, and I'm thankful for that because that's why I have a business, is you should have 3 to 6 months of emergency savings set aside. And so if you now can replace a little bit more of that with another 3 to 6 months of your income that you need to replace as you make that transition, then that fear goes away. You could really focus on running your business and working with the right clients to build the business that you dreamed of when you decided to go start that side hustle so that you can make the transition.
• 4:49
  Joe Rando: That's such a great point because, you know, if you're taking customers because they're breathing as opposed to because they're the right customer for you, You're going down a bad path. If you treat a customer like they're your lifeline to groceries, as you pointed out, you're probably not serve them the way that they really wanna be served because you're gonna be so focused on collecting revenues. So what it's a really good advice to to to do it the way you're saying it really is.
• 5:13
  Gabe Nelson: Oh, yeah. I mean, I I built my practice on the fog a mirror. You could fog a mirror. I took you on as a client, and I've spent the last 4 years cleaning that mess up. And that's not fun.
• 5:26
  It's not fun cleaning that mess up. So try to try to build your business cleanly in the beginning.
• 5:32
  Carly Ries: Yeah. I think that is such great advice. And I I do have a quick question. So we're you're kinda talking about the 3 to 6 months of an emergency fund. But let's say you wanna do this, but you also have a big purchase that you wanna make.
• 5:42
  You wanna buy a house. You wanna start saving for your kid's college or something. How can solopreneurs plan for that big stuff when their income is unpredictable? I mean, even past that 3 to 6 months, like let's say they are a solopreneur and have been for a while. How can they blend for the big things even when their income is, can be unsteady?
• 6:01
  Gabe Nelson: My advice is to kind of follow that whole profit first mindset, which is you you pay yourself 1st. And you start taking that idea that, alright. Well, I wanna start put setting aside money for a house. Let's use that big purchase example or the down payment. You know, every single month, you've you've started to build a track record.
• 6:18
  If you've made it past 6 months as a solopreneur to a year, you're starting to achieve success or you're doing really, really well, and your lifestyle has caught up to your income, which happens all the time, is to start to pay yourself first and go, alright. Well, I know that if I set aside $1,000 every single month, I'm just using that as an arbitrary number. I know that over the course of a year, I can put away $12. In 2 years, I'll have, you know, $24,000. Is that a lot?
• 6:48
  To some, yes. But will it help get somebody closer? And so then, you know, reverse engineer the the math that if you need to come up with a $100 over the next few years, well, what do you gotta do to set aside to get that done? Pay yourself first and start putting that money into what I would call it a separate account that you can use towards that goal. And that it the the other thing it starts to do is it starts to snowball.
• 7:13
  You start to see that account get bigger, and you get more motivated to keep funneling money into that account.
• 7:19
  Carly Ries: Yeah. Absolutely. So I'm even gonna take this question one step further because savings is great and everything. But I know when I jumped ship from being an employee with a company to being out on my own, a big thing that I lost was So in addition to saving for those big purchases, where should solopreneurs start when they are self funding their retirement?
• 7:45
  Gabe Nelson: Well, the first thing they gotta do is they, they should take their retirement plan from their prior employer and move it into, at the very least, an IRA or a Roth IRA so that they are able to still maintain control of those funds that they built up before. Then the next thing is to then in my advice to almost every single one of my clients, unless they hit the ground running and they're making a great living immediately when they make that transition, is start small. Start with a SEP IRA. Start with a regular IRA. And I'll go down that road a little bit because this is where I get really excited.
• 8:18
  It's kinda like the funnest part to financial planning for solopreneurs for me
• 8:23
  Carly Ries: Yeah. Go all the way you want to.
• 8:25
  Gabe Nelson: Alrighty. Alright. Good. Well, I appreciate that permission. I was gonna take it anyways, but I appreciate the permission.
• 8:31
  So Okay. an IRA, as a solopreneur, if you're under 50 years of age, you can put $6,000 a year away into an IRA. And if you do it as a traditional IRA, you get a tax deduction for doing it. So let's just use, you know, simple 20% math. If you had put $6,000 away in a IRA, you're gonna get you know, a $1200 tax deduction for doing that.
• 8:58
  That IRA is gonna grow tax deferred. It's gonna then build up so that you can go to use it in retirement. The other way you could go if taxes aren't really an issue in the beginning is you go to a Roth IRA. A Roth IRA, if you're under 50 years of age, allows you to put 6,000 away. And if you're over 50 years of age on a Roth IRA and a traditional IRA, you can do $7,000.
• 9:19
  Now there are income limitations that come into those, but that would allow you to start to put money away. And it doesn't take a lot to get started. You can start a Roth IRA or a regular IRA with, you know, $50 a month, $25 a month in some places. But what I try to then start getting my solopreneur clients to start really thinking about is, okay, what's the next step? If you can put more than 6 or $7,000 a year away, where can we go next?
• 9:47
  And that's where you jump into the SEP IRA. Now the SEP IRA is gonna allow you to put up to 25% of your bottom line in. So if you're a straight sole proprietor, you made a $100,000 bottom line, you could put $25,000 a year away for your retirement. If you could afford it, you could do it. And that $25,000 is all pretax, so you get a tax deduction on that $25,000 Simple 20% tax bracket math, $5,000 tax deduction for doing that.
• 10:17
  But then that money gives you the opportunity to grow tax deferred and comes out at retirement. You'll pay taxes then at whatever your rate is. But then there's another level. There's a simple IRA. Simple IRA takes the idea of that old 401 k that you had, but simplifies it, hence the word simple.
• 10:36
  There's a really long name as to why it's called a simple IRA, which is boring to everybody. So I'll just call it a simple IRA. You could put up to $13,500. Nope. It's $14,000 this year that you could put into it if you're under 50, and another $3,000 if you're over 50.
• 10:53
  And then you can use your company checkbook to then do a 3% match is what you can do with a simple IRA. And so, you know, you're talking a little more than $1,000 a month that you could put away if you were, able to do that. Then the next level is a solo 401 k. And this is the part that really gets me excited because that takes really that old retirement plan that you had at the prior job and all the benefits and all the options you could actually put into your solopreneur business. Whether you're a sole proprietor, whether you're an S corp, whether you're an LLC filing as an s corp, there's all kinds of ways that you can design a solo 401 k into your retirement program that allows you, if you're under 50 years of age, to do $19,500.
• 11:38
  Plus, you can then do a 25% of your bottom line profit sharing contribution. If you're over 50, the numbers are better. I'm sorry. I actually misspoke. The number is $20,500 that you can put in, plus another $65100 of ketchup if you're over 50, for $27,000 that you can actually put away.
• 11:58
  And the neat thing is with a solo 401k is if you wanted to, you could design a Roth 401k into it so that you can play both sides of the tax game. So that's where I normally tell my people to start. Like, we're gonna go down these roads, and what I tell everybody is just start small. Start with a $100 a month, and then let's build. As your business continues to grow, we'll go to 200.
• 12:21
  Then we'll go to 300. Then we'll go to 400. And we'll just keep growing and getting bigger until you're at a point where, alright Gabe, my clients will say, alright, where else can I put money? I wanna reduce my taxes or I'm trying to play catch up on retirement. Where else can I go then?
• 12:37
  And that's generally how that solo 401 k comes about. And then there's one more up above that. It's called the defined benefit plan, where someone, you know, doesn't matter. You could be 30 years of age or you could be 70 years of age and put a defined benefit plan. You're really just designing your own pension.
• 12:54
  And so a 50 year old person right now could put somewhere in the neighborhood of a 100 to a 150,000, maybe 2 $100,000 a year away depending upon your, income and your bottom line, all pretax. Then what you're doing is you're just building your own pension plan that they used to have in the old days that our grandparents have. My dad has a pension. He's one of the last of people that I know that has a pension. But those are the areas I go.
• 13:22
  So, yes, you will not get the match. Yes, you will not have the you have to sign this form to get out of the 401 k because there's a lot of plans that have a a reverse enrollment that basically says we're putting you in the plan, and if you choose not to, you have to sign a form to get out of it, and that's sometimes how people start retirement plans. So there's all kinds of ways to get it started. You will not have the company match that you had from your employer, but you have all the control in the world to design it the way you want to. And as you can tell, as I just went on for, like, 87 minutes, that's pretty that I get excited about that because that sounds so much fun and creativity that you can bring into something that seems really, really boring.
• 14:05
  Joe Rando: I'm, like, so blown away because I didn't know about any of this stuff, and I thought that I knew at least a little bit. And this is amazing. And I'm going to add something. It's a shameless plug, but not for us. If you're a solopreneur, you need to find yourself a financial advisor that understands what it is to be a solopreneur
• 14:25
  Carly Ries: Like this guy. Gabe knows. Yeah.
• 14:27
  Joe Rando: Yeah. I mean, we're talking about stuff that I've never heard. I have some pretty good tax advisors in my life. And though I'm not a solopreneur right now, this is stuff, you know, beyond anything I've ever heard. So really cool.
• 14:39
  Really, really cool.
• 14:41
  Gabe Nelson: Thanks. I appreciate that because, I mean, this is the area that I have so much fun in, and, you can hear it. And and I actually do have done all of these type of planning for myself as well. And so I know how they work because I do them, And I've done them all either for myself or I have implemented them as my businesses continue to grow.
• 15:02
  Carly Ries: Gabe, all this is just so fascinating. And one thing that you were saying, to grow it as your business grows. One of the things people might have trouble with is actually growing that business, and that's often because when people become solopreneurs, it's difficult to price their services. So do you have any advice for that?
• 15:19
  Gabe Nelson: Yes. I do. 1, sit down. 1st first of all, think about who your ideal client is. Now this is a little before pricing, but think about who your ideal client is And then the value you're providing, and then you really need to start to price your services properly.
• 15:38
  And that's really just a repeat of your question, but what I'm gonna get to is is the thing that I like to use is is think in terms of of a third, a third, a third, a third of overhead in your pricing, a third of expenses. Overhead expenses kinda sound like the same, but overhead, let's just say is your pay. And then expenses, let's use, your software. If you have an office rent or your cell phones or your computer programs or all the your insurance, etcetera. And then add a third in a profit.
• 16:11
  Literally build profit into your pricing so that you're able when you go to price something, you're actually realizing that, okay, I've got my pay in here, and I've got my profit in here so that I can use that profit to grow my business and do the things I'm doing. Because a lot of times what people do is they go, alright. Well, I'm gonna go out and start my company, and I know that I can start to do the same work for clients that my company was paying me to do. So I'm taking my skill set, my relationships, and I'm gonna go hang my own shingle, and I'm gonna go do my own thing. And they go, well, my business my business before was billing me out at a $100 an hour.
• 16:51
  I'm just gonna go bill out at a $100 an hour. Well, we forget that that $100 an hour was paying you, but it was paying benefits. It was paying taxes. It was paying things. And what people have a tendency to forget, is they forget they're gonna have to pay taxes.
• 17:05
  And solopreneurs, if you haven't figured this out already, you gotta pay self employment taxes. So not only do you have that 7.65, you gotta double it. So now you got 15.3 plus your marginal tax bracket. You got taxes to pay. You gotta replace your benefits somehow, some way.
• 17:22
  We just talked about retirement. You need to build in the ability to put money for way for retirement. And so what I urge, solopreneurs not to do is don't go back to those clients that you're gonna go steal, or do business, you know, for those clients, and say, well, they were billing you out at a $100 an hour, so I'm gonna come in at 75. Well, you just cut out your profit, and then you're you're not pricing your your products and your services properly, which is gonna put you in a spot where you're gonna wake up one day and go, holy crap. I'm not charging enough.
• 17:56
  No wonder I don't have any money left over at the end of each month.
• 17:59
  Joe Rando: I have a question on that. So matching it makes a lot of sense. One of the things though is that sometimes when you're at a bigger company, yes, they have various overhead, but they also have economies of scale, right? So they have that you're renting an office for one person. They're renting an office for a 100 people or whatever.
• 18:18
  And the cost per person, so to speak, might actually be lower on a lot of these things. The benefits can be a lot cheaper in groups. So the $100 an hour might not even be sufficient to kind of do what they want to do in terms of that 3rd, a 3rd, and a 3rd. Is have you come across that? Is that has that been the case for anybody you've seen?
• 18:38
  Gabe Nelson: Yeah. Definitely. That $100 an hour might actually once once a solopreneur sits down and says, alright. Well, my 3rd, a third, a third is gonna be a 150 an hour. Okay.
• 18:50
  You might have to go out and charge a 150 an hour. So then that comes back to, alright, how good of a salesperson are you? Are you really understanding their needs? And could you deliver the value of 150 an hour that someone was paying a 100 an hour before? Now that's a whole other conversation.
• 19:07
  Joe Rando: Oh, I go on and on about that. I go on and on about that! Another podcasts.
• 19:14
  Gabe Nelson: Yeah. That's a whole another podcast, but it's true. And I'm glad you go on about it because it's really important on running your business properly.
• 19:20
  Joe Rando: It's all about market positioning and defining what you do and what you don't do in such a way that you have more value to the to the targets than your competitor.
• 19:29
  Carly Ries: Well, Gabe, I could just listen to you talk all day every day. So luckily, you do have a podcast, which we'll plug in a second. But I can't believe we're getting to the end of this episode, and you've been so successful with helping solopreneurs find financial success. So I have to ask you, what is your favorite quote about success?
• 19:46
  Gabe Nelson: You know, Carly, I've been thinking about this ever since I got your informational sheet. I'm looking at it. I'm going, what is my favorite quote about success? And I keep coming back to the phrase, just keep swimming. I keep thinking about Dory in the net that gets the whole group of fish to just keep swimming.
• 20:04
  And so I keep coming back to Finding Nemo, and it's such a really great business quote because as a solopreneur, it's a lonely game, and it's a lonely time. And if you just keep swimming, and you just keep moving forward, and you just keep doing the work, and helping the people, and making the calls or doing the the things that you need to do, the success continues to build and it builds upon itself. So I keep coming back to Finding Nemo and just keep swimming.
• 20:37
  Carly Ries: Gabe, can I just tell you, you are the second guest in the past 2 weeks that has said that, which is I know? So funny because it's so relevant. It's true. Like, good job, Pixar, because that quote I mean, that movie's been out, what, now, 20 years, which is crazy.
• 20:50
  Gabe Nelson: Yeah.
• 20:51
  Carly Ries: And it frequently comes into my mind when I'm trying to whether it's with business, life, whatever. So I I love that that's your quote. Yeah.
• 20:59
  Joe Rando: Every business I've ever been in has just felt at one point earlier on, like, it was probably a good idea to quit, that it wasn't gonna work. And I don't have that in me, probably to a fault, and stuck with it and was glad I did. And it's always even when it didn't work out, I did it again, same thing, a little different, and it worked out. So I think it's a great quote and a great piece of advice. Just plug keep plugging, but adjust.
• 21:27
  Carly Ries: Well, and Gabe is just full of advice. And so, Gabe, right now, I wanna wrap up the show with sharing where others can find you, the podcast, online, wherever.
• 21:37
  Gabe Nelson: Podcast is called Solopreneur Money, and I have a website for the podcast called solopreneurmoney.com. If you go there, that'll take you everywhere you need to go. It'll allow you to get to my Gabe Nelson Financial Inc website. So it's gabenelsonfinancial.com is my business that I operate, that I serve solopreneurs to help them master their finances and create the life they want.
• 21:59
  You also can get a link to go buy my book on Amazon, The Solopreneur's Money Manifesto. And you start at solopreneur money, you'll be able to find me anywhere.
• 22:09
  Carly Ries: Fantastic. Well, I think my prediction became true because this was a very helpful episode. And Gabe, we cannot thank you enough for coming on the show.
• 22:17
  Joe Rando: It was great.
• 22:18
  Gabe Nelson: Oh. Thank you, guys. I really appreciate it. This was a lot of fun.
• 22:22
  Carly Ries: Definitely. We'll have you back anytime. And that wraps up another episode of the one person business podcast. To listen to past episodes and subscribe, visit lifestarr.com/podcast or you can find us anywhere you subscribe to your shows or listen to your shows. We'll see you next time.
• 22:40
  You may be going solo in business, but that doesn't mean you're alone. In fact, millions of people are in your shoes, running a one person business and figuring it out as they go. So why not connect with them and learn from each other's successes and failures? At Lifestarr, we're creating a one person business community where you can go to meet and get advice from other solopreneurs. Be sure to join in on the conversations at community.lifestarr.com.